Final answer:
Financial capital is the money a business has available, and it is closely related to profits. Businesses can raise funds through borrowing, bonds, and corporate stock. When choosing between sources of financial capital, firms consider factors like interest rates and ownership impact.
Step-by-step explanation:
Financial capital refers to the money a business has available to invest in its operations and assets, and it is closely related to profits. When a business has access to sufficient financial capital, it can invest in new equipment, technology, or marketing strategies that can help increase its production capacity and generate more sales. This, in turn, can lead to higher profits.
Borrowing, bonds, and corporate stock are all sources of financial capital that businesses can use to raise funds. Borrowing involves taking loans from banks or other financial institutions, while bonds are debt securities issued by a company to investors, and corporate stock represents ownership shares in a company.
When firms choose between sources of financial capital, they consider factors such as the interest rates, repayment terms, and the impact on the ownership and control of the business. They evaluate the cost and benefits of each option to make an informed decision.